SEC Roundtable to Debate Policy on Shareholder Suits

BNAs Corporate Counsel Weekly (subscription required) reports that the SEC has planned a roundtable discussion on the status of shareholder securities litigation to be held in January 2008. According to the BNA report, the roundtable was prompted by a letter from six law professors, including Professor Donald Langevoort of Georgetown, raising concerns that the current system does not work as well it could. Among the concerns the professors raised in their letter are:

securities fraud settlements typically are funded by the shareholders, directly or indirectly;

compensation to defrauded investors comes at a “relatively high cost” in lawyers’ fees and related expenses; and

“the current system does a bad job at deterrence because … settlements almost never come out of the pockets of the managers who allegedly executed the fraud.”

All of these are valid and serious concerns. Hopefully, the SEC and roundtable participants will brainstorm to devise ways to address these problems with a more creative approach than further dismantling the securities fraud liability regime. My view (which I present in this article in Iowa Law Review) is that the D&O liability insurance system and the issue of personal liability for individual wrongdoing are the areas most deserving of careful attention for reform.